ACCT 3210 Chapter 7 Preview: Cash and Receivables

When a company has a claim to receive assets in the future, how is this recorded on the balance sheet?

A receivable

Which of the following is an internal control procedure for cash disbursements?

Disbursements should be made by check

The formula for calculating interest multiplies which of the following? (Select all that apply.)

Fraction of the annual period Face amount of the note Annual interest rate

Which of the following give rise to a note receivable? (Select all that apply.)

Loaning money to stockholders. A formal, written extension of the credit period to trade customers. Loaning money to an affiliated company.

Which of the following will require a journal entry in a bank reconciliation? (Select all that apply.)

NSF Checks Notes collected by the bank

Coins, balances in checking accounts, checks received from customers and money orders received are all included in the _____ account on the balance sheet. (Enter only one word.)

cash

Morrow Corp. had the following information in its bank reconciliation: NSF checks $1,000 Outstanding checks $3,000 Miscellaneous bank service charges $200 The journal entry required for the bank reconciliation is

credit cash, $1,200.

Internal control consists of plans to (Select all that apply.)

encourage adherence to company policies and procedures. promote operational efficiency. minimize errors and theft.

Which of the following is a discount that is a reduction in the amount to be paid if the customer pays within a specified time period?

sales discount

A critical aspect of a good internal control system is

separation of duties

When adjusting the book balance in a bank reconciliation, which items must be subtracted from the cash account bookbalance? (Select all that apply.)

service charges charges for NSF checks

Accounts receivable are classified as current assets because

they will be converted to cash within 1 year or the normal operating cycle.

Lassiter Corp.'s cash balance in the accounting records is $80,000. When Lassiter receives the bank reconciliation, the following items were discovered: Outstanding checks $10,000 NSF checks 4,000 Note collected by bank 3,000 Deposits outstanding 5,000 What is the corrected cash account balance?

$79,000

What does a sales discount represent?

A reduction in the amount to be paid if paid within a specified period of time.

Which of the following are adjustments to the bank balance in a bank reconciliation? (Select all that apply.)

Add deposits outstanding Adjustments for bank errors Deduct checks outstanding

In a bank reconciliation, which items will require journal entries by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books.

When a specific account receivable is determined to be uncollectible, which of the following occur? (Select all that apply.)

Allowance account is reduced Account receivable is reduced

When an accounts receivable is written off, which account is impacted?

Allowance for uncollectible accounts

At what amount are accounts receivable recorded?

Amount expected to be collected

When the amount of bad debts is material, GAAP requires the _____ method be used to reduce the carrying value of accounts receivable to the amount of cash expected to be received. (Enter only one word.)

Blank 1: allowance

The gross method and the net method are two ways to record _____ discounts. (Enter only one word.)

Blank 1: cash or sales

In a(n) _____ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

Blank 1: noninterest, non interest, or non-interest

A(n) _____ _____ occurs when a customer returns merchandise for a refund. (Enter one word per blank.)

Blank 1: sales Blank 2: return

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _____ _____. (Enter one word per blank.)

Blank 1: sales Blank 2: return

A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specified period of time is also referred to as a(n) _____ discount. (Enter only one word.)

Blank 1: sales or cash

Differences between the book balance and bank balance occur due to _____ differences and _____. (Enter only one word per blank.)

Blank 1: timing Blank 2: errors

A(n) _____ discount is a way to change prices without publishing a new catalog. (Enter only one word.)

Blank 1: trade

An application where the interest rate stays the same over time, but interest revenue increases as the rate is multiplied by a receivable balance that increases is referred to as what?

Effective interest method

True or false: An interest-bearing note earns interest, whereas a noninterest-bearing note does not earn interest.

False

Cobalt Corp. uses the allowance method to account for bad debts. If Cobalt writes off an account for $3,000, what is the effect on the balance sheet?

No effect on total assets.

Rice Corp. noticed that a check written by the company for utility expense in the amount of $1,000 was incorrectly recorded by the bank as $1,100. What is the journal entry required to correct this error?

No entry is required on the company's books.

Arcelia Corp.'s bank statement has an end balance of $40,000. The deposits outstanding were $7,000. A note was collected by the bank for $2,000. Checks outstanding at the end of the month were $1,000. Using the bank statement, what is the corrected cash balance?

Reason: $40,000 + 7,000 - 1,000 = $46,000. The note collected by the bank is already reflected on the bank statement.

Malik Corp.'s bank statement has an end balance of $50,000. The deposits outstanding were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance?

Reason: $50,000 + 6,000 - 3,000 = $53,000. The NSF checks are already recorded by the bank.

Remey Corp.'s cash balance in the accounting records is $60,000. When Remey receives the bank reconciliation, the following items were discovered: Outstanding checks $5,000 Service charges 100 Note collected by bank 2,000 Deposits outstanding 1,000 What is the corrected cash account balance?

Reason: $60,000 + 2,000 - 100 = $61,900. The outstanding checks and deposits outstanding are used to correct the bank statement balance.

Which of the following is usually reported on the balance sheet as a noncurrent asset?

Restricted cash

When a receivable is written off, which of the following occurs? (Select all that apply.)

The allowance for uncollectible accounts is reduced. Accounts receivable is reduced.

At what amount are accounts receivable initially recorded?

The exchange price agreed on by the buyer and seller.

Which of the following is an example of separation of duties in a good system of internal control?

The individual who receives the inventory does not have access to the accounting records.

True or false: Both interest bearing and noninterest bearing notes bear interest.

True

True or false: With the effective interest method, interest revenue differs between periods.

True

When does the actual write-off of a receivable occur?

When it is determined that all or a portion of the receivable will not be collected.

A trade discount is

a percentage reduction from list price.

Which of the following items are not included in cash?

accounts receivable from customers

Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that (Select all that apply.)

all expenditures are authorized. all disbursements (other than petty cash) are made by check. checks are signed by authorized individuals.

A contra-asset account is used to reduce the carrying value of accounts receivable to the amount of cash expected to be received under the _____ method of accounting for bad debts.

allowance

Which method of estimating bad debts is required by GAAP when the amount of bad debt is material?

allowance method

When initially recorded, the typical accounts receivable is valued at the

amount expected to be received.

Restricted cash is usually reported in the balance sheet

as concurrent assets

The expense associated with the estimate of the amount of accounts receivable that may not be collected during the year is referred to as

bad debt expense.

Which of the following items are included in cash?

balance in checking accounts checks from customers currency and coins

A trade discount is a reduction from the list price, which is to (Select all that apply.)

change prices without publishing a new catalog. disguise real prices from competitors. give quantity discounts to customers.

Multiple Choice Question Morrow Corp. had the following information in its bank reconciliation: NSF checks $1,000 Outstanding checks $3,000 Miscellaneous bank service charges $200 The journal entry required for the bank reconciliation is

credit cash, $1,200.

Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. The journal entry required would be

credit cash, $2,000.

Which of the following items are included in cash? (Select all that apply.)

currency and coins checks from customers balance in checking accounts

An account receivable is normally classified as a

current asset

When adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance?

deposits in transit

Internal control consists of plans to (Select all that apply.)

enhance the reliability of accounting data. promote operational efficiency. enhance the accuracy of accounting data.

Which of the following will cause differences between the bank statement balance and the accounting balance for cash? (Select all that apply.)

errors timing differences

The two methods used for recording sales discounts are the _____ method and the _____ method. (Enter only one word per blank.)

gross, net

Separation of duties requires that

individuals who have physical responsibility for assets should not have access to accounting records.

(Face amount x annual rate x fraction of the annual period) is the formula for

interest on a note.

A company's plans to adhere to policies and procedures, promote operational efficiency, minimize errors and theft, and enhance the reliability and accuracy of accounting data are referred to as

internal controls.

Internal control consists of plans to (Select all that apply.)

minimize errors and theft. encourage adherence to company policies and procedures. promote operational efficiency.

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable.

When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?

outstanding checks

A company's claims to the future collection of cash, other assets, or services is called a ________.

receivable

One of the most important internal controls for cash is the bank _____. (Enter only one word.)

reconciliation

Accounts receivable are almost always considered current assets because

their normal collection, even if longer than a year, is part of the normal operating cycle.

Under the allowance method, when is bad debt expense recognized?

when the allowance is created